AM Index - February 2009
2008 could be considered the UK’s Used Car Market’s ‘annus horribilis’. The previous year saw both record levels of new registrations and a buoyant used car market which was reflected in CAP’s measure of year-on-year 3yr 30,000 miles price movements; -5.4% between Dec-06 and Dec-07. Based as it is on a full analysis of like-for-like vehicles’ values, the 5.4% drop perfectly illustrated one year’s lifecycle depreciation, as 2007 saw balanced supply and demand and strong used-car buying activity.
The contrast with 2008 is pronounced. The equivalent 3yr 30,000 miles year-on-year price movement was -20.9%, almost a four-fold increase in depreciation, with 3yr-old values in Dec-08 over a fifth less than a year earlier. So what went wrong? Well, the Credit Crunch, Banking crisis, and the resulting onset of recession came at the same time as the hangover from unsupportable levels of pre-registration and the July peak in fuel costs.
These factors coincided with fundamental shifts in buyer behaviour to severely diminish the level of demand in the Used Market, and as consumer confidence dropped, buyers flocked from the used car market and stock levels rose and values plummeted. The chart below shows the comparative annual depreciation by Sector for 2007 and 2008. Hardest hit were the larger vehicles, with the 4x4, Upper Medium and Executive sectors all reaching depreciation levels of over 30%.
The 4x4 sector was the first to feel the effects with depreciation accelerating from January 2008 onwards. The Executive sectors followed in the first quarter, and the rest of the market went into decline from May through to the end of the year.
Despite widespread caution throughout the industry as to what 2009 would bring, this year has so far exceeded all expectations. Dealers actively liquidated stock before the Christmas break and the need to replenish forecourts combined with packed auction halls meant the year started to a flurry of buying activity. Conversion rates in late 2008 had dipped to around 60% and the %CAP achieved at disposal in December hovered at around the 90% mark for 2005 to 2008 plates.
January however, saw conversion rates significantly increase and the 05 to 08 disposals achieve an average 97.6%CAP, as well as seeing a continuation of a resurgence in 4x4 values. The year from Dec-07 to Dec-08 saw average 4x4 values drop by £2,860; a mean monthly reduction of nearly £240. CAP’s January Black Book, however, recorded an average drop of only £30, with February’s average values actually increasing by over £100. The values had dropped to a level that now spurred buying activity as buyers weighed up how much car could be bought for their money.
BMW’s petrol X5 saw values increase by around 5% into February, no doubt helped by 2009’s fuel prices, and its oil-burning smaller sibling, the diesel X3 also fared well, with values up by around 3.5%. Sector stable-mates, the Volvo XC90 and Land Rover Freelander (both in petrol and diesel) saw similar price hikes as buyers weighed up attractive purchase prices against the reductions in whole-life costs brought about by fuel pricing stability.
At the other end of the size scale, Superminis (along with City Cars) were one of the only sectors where residuals stayed relatively buoyant throughout last year, as shown by the chart below showing the cumulative % change in CAP’s Black Book value for Superminis compared with 4x4s. February also saw average Supermini values rise, although by a modest 0.7% for 1 and 3 year-old models. Standout performers were the petrol models with Vauxhall Corsa seeing values rising by around 5% and the Mazda 2 and Fiat Punto increasing by around 4%.
Early indications are that disposals this month are even stronger than January, as what is becoming a significant shortage of used stock begins to take effect. Near 100% conversion rates and heavy buying activity mean average disposals values can be significantly over CAP Clean, potentially paving the way for what could be sizeable increases in guide values in March. It is perhaps premature to signpost this as a recovery, although this analyst for one will be watching developments very closely.
ends
Note: The published versions of this feature can be seen, complete with illustrative charts, on page 72 of the February 20 2009 edition of AM, or online at am-online here.
